Tories' Cellphone Misdial

Following months of intense telecom lobbying, Industry Minister Jim Prentice took to the podium last week at a Toronto hotel and unveiled the government's policy on the forthcoming spectrum auction. Dismissing misleading claims of government subsidies, Prentice pointed to the one fact that is obvious to millions of Canadian cellphone owners -- the Canadian market is sorely lacking in competition, leaving consumers paying too much for too little.

Prentice's proposed remedy? Reserve a portion of the spectrum for new entrants and mandate that the dominant incumbent providers -- Bell, Rogers, and Telus -- share their cellphone towers and enter into roaming agreements with the new competitors. The decision is the right one, but in the rapidly evolving wireless market, it should only be viewed as a first step toward fostering a robust and competitive Canadian wireless marketplace.

Spectrum allocation, which focuses on the availability of frequencies used to provide wireless services, involves fairly technical questions that few outside the industry follow closely. Yet the impact of spectrum policy has far reaching effects on consumers, since the right policies can foster greater competition, better services, and lower prices by encouraging the entry of new providers.

While the big three wireless companies sought to block new entrants by arguing for an open competition that would have left new competitors on the outside looking in, Prentice, who stood behind the slogan "putting consumers first," instead opted for proactive rules that should guarantee the entry of new competitors such as Videotron, Shaw, and MTS Allstream.

Rush to open US market

New wireless competition will be welcome news to consumers; however, it represents only part of the solution. The day before the Prentice press conference, U.S.-based Verizon Wireless shocked the industry by announcing that next year it will adopt an "open network" approach that will remove the restrictive walled garden that typifies the incumbent carriers. Instead, its customers will be permitted to use any device and any application that meets minimum technical standards.

The Verizon decision comes just weeks after Google introduced a partnership with leading U.S. carriers such as Sprint and T-Mobile to create the Open Handset Alliance, which will similarly enable consumers to use devices that are fully open to new innovation and third-party programs.

This rush toward an open cellphone market stands in sharp contrast to years of restricted networks that left decisions about new devices and functionality strictly in the hands of a few dominant cellphone providers. Over the past year, the emergence of the Apple iPhone, which demonstrated the potential functionality of new devices as well as the frustration with phones that are locked to single carrier, along with the growing awareness of the negative impact of closed networks, has persuaded many regulators and companies that open is the way to go.

Copyright clampdown counterproductive

The open network approach has yet to find much support in Canada, however, as the new spectrum auction rules did not include any open network requirements. In fact, while U.S. regulators have begun to prod the carriers to move toward greater openness by including open standard requirements into its forthcoming spectrum auction, Canadians are left with a closed market.

Ottawa does not appear ready to help since Prentice will likely discard the consumer-first slogan when he introduces new copyright laws later this month that could make it illegal for Canadians to unlock their cellphones. Moreover, while there will be another opportunity to inject both openness and competition into the market during the next spectrum auction in 2011, four years is a long time to wait to catch up to the rest of the world.

Indeed, with government on the sidelines and the established competitors focused on protecting their market share, the best chance for a truly open Canadian wireless market may rest with the new entrants, who would do well to differentiate themselves not only on price, but also by embracing a more innovative, open strategy.

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